The Securities and Exchange Board of India (SEBI) has told stock exchanges to seek financial details of companies suspended for non-compliance with the listing agreement from the Registrar of Companies (RoC).
The regulator had recently formed a committee comprising senior officials from SEBI, investor associations, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) to resolve complaints pending against companies suspended by the exchanges. Non-payment of listing fees is the most common reason for suspension of companies from the bourses.
At its meeting , the committee debated on the need for a different method for charging listing fees, so that its non-payment does not become an easy route for companies looking to delist without having to compensate their shareholders. Further, several measures, including prosecution, are being considered to punish errant directors and companies resorting to such tactics.
According to people familiar with the development, some of the companies that have been suspended for non-payment of listing fees were doing well financially.
“This gives an impression that the companies deliberated defaulted on the listing fees to dupe retail shareholders by not providing a fair exit,” he said.
Starting backwards for the period 2009-2000, the exchanges will examine whether the companies were guilty of wilful default so as to avoid giving an exit to minority shareholders. The report is expected to be submitted before the committee by the end of March 2010.
According to sources, the committee is considering several measures like debarring the directors of the suspended company from holding a similar post in any other company, launching prosecution proceedings against the suspended companies and compulsory delisting after a certain time.
Around 1,700 companies have been suspended by the BSE and NSE as on December 2009, blocking over Rs 60,000 crore of individual investors’ money. Around 30 lakh investors are unable to sell their holdings due to suspension of trading in those shares. The committee will also try to ascertain the losses incurred by genuineinvestors and find out ways to compensate them.
The Securities Contract Regulation Act has been amended by including provisions whereby errant companies and their managements can be penalised up to Rs 25 crore or jailed for up to 10 years. However, legal experts say that in these kinds of cases, regulators have to go after the individuals and hold them responsible rather than the company.
“It is important to identify these promoters/companies and penalise them so that they do not defraud investors again. There is also a need to see how some of the assets can be redistributed, besides tightening the listing requirements,” says Narendra Mehta, secretary,Investors’ Grievances Forum (IGF).
It is proposed that stock exchanges may either take a one-time listing fees or in a block of five years. Currently, exchanges charge listing fees from the companies on the basis of their share capital.
For instance, BSE charges an initial listing fee of Rs 20,000 and after that companies with a capital of up to Rs 5 crore pay an annual fees of Rs 10,000. Similarly, those with a capital between Rs 5 crore and Rs 10 crore pay Rs 15,000, while those having capital ranging from Rs 10-20 crore pay Rs 30,000. Companies which have an issued capital of more than Rs 20 crore are required to pay an additional fee of Rs 750 for every extra Rs 1 crore. Capital includes equity shares, preference shares, fully convertible debentures, partly convertible debentures and any other security convertible into equity shares.
If a company is paying Rs 1,00,000 as listing fees every year, experts suggest that exchanges should take a one-time deposit fee of Rs 15 lakh on which it could get an interest in lieu of thelisting fees. This will help in preventing errant companies from defaulting on the payment of listing fees.